The Impact of Child Care Subsidies on Child Well-Being: Evidence from Geographic Variation in the Distance to Social Service Agencies

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Article first appeared online August 6, 2015

Erdal Tekin, Professor of Public Policy, School of Public Affairs, American University; Research Associate, NBER; Research Fellow, IZA; Chris M. Herbst, Assistant Professor, School of Public Affairs and Faculty Affiliate, School of Social Work and the Center for Population Dynamics

What was the genesis of the idea for your research/paper?

I wrote my dissertation on the impact of the U.S. child care subsidies on the employment and welfare program participation outcomes of low-income populations. After completing my Ph.D. in 2001, I continued working on studying various aspects of the U.S. child care system and published some of the first papers assessing the effect of child care subsidies on parental employment. In late 2000s, my colleague from Arizona State University, Chris Herbst, and I have partnered together to launch a new research agenda focused on exploring the effect of the U.S. child care system on child well-being. This research agenda was motivated by the fact that most of the available evidence at the time related to the relationship between subsidies and parental outcomes, especially maternal employment and there was little credible evidence on other aspects of the subsidy system on child outcomes.

Furthermore, we also had reasons to believe that some of the design features embedded in the U.S. child care system, such as the overemphasis placed on inducing parents employed rapidly and relatively few incentives for parents to purchase high quality care, might undermine child development. Although we were not to only researchers to have such concerns, there was no credible evidence on the question at the time. Chris and I decided to tackle this question.

What is the main conclusion that becomes evident from your research? (Or, what is your main takeaway?)

The main conclusion from our research is that although U.S. child-care subsidy policy is effective at increasing the work effort of low-skilled mothers, it is less successful at enhancing the health and well-being of children and families.

What are some of the more interesting or surprising findings/conclusions did you find in the process of bringing this together?

Many scholars and policymaker, and the readers of the JPAM in general, may be surprised by our main conclusion that a child care system that should be designed “care” for children may instead undermine their well-being. The important is why. We believe there are at least three plausible explanations. First, the subsidy system essentially operates like a labor market program. It was created to solve the “problem” of low employment rates among single mothers, and it accomplishes this by conditioning eligibility for child-care assistance on fulfilling a work requirement. However, a child-care subsidy is at best an indirect tool for inculcating a work ethic and increasing human capital among low-skilled families. At its worst, an employment-conditioned subsidy attempts to remedy a distortion in the labor market, but instead creates distortions in the child care market that did not initially exist. For example, subsidies encourage a shift in child care demand from unpaid to paid services. In addition, they may exacerbate quality constraints in the larger child-care market by discouraging child-care providers from making costly quality enhancements.

Second, the CCDF’s commitment to parental choice means that low-skilled parents can move quickly into the labor force. However, the primary disadvantage of parental choice is that parents often have insufficient information to make optimal purchasing decisions. When parents cannot make informed decisions, child-care providers have little incentive to invest in costly quality enhancements. The third explanation focuses on the subsidy reimbursement rate, or the maximum amount a government agency pays child-care providers to serve subsidized children. But the reimbursement rates are not set high enough to allow parents to purchase good quality and reliable care.

Erdal Tekin, PhD, is a professor of public policy in the School of Public Affairs at American University. He is also a Research Associate at the National Bureau of Economic Research (NBER) and a Research Fellow at the Institute for the Study of Labor (IZA) in Germany. Additionally, he is an editor for the Journal of Population Economics. Previously, Dr. Tekin was a Professor of Economics at Georgia State University between 2001 and 2014. Dr. Tekin has three lines of research. His first line of research focuses on the impact of the U.S. child care system on outcomes concerning parents and children.

In particular, he has conducted extensive research examining how various aspects of the U.S. child care system including child care subsidies, child care prices and wages as well as child care regulations influence parental and child well-being as well as parental employment. He has also examined how other welfare programs interact with child care subsidies to influence parental decisions on employment and welfare participation. Dr. Tekin's second line of research concerns the analysis of risky behaviors.

Dr. Tekin has a comprehensive research agenda focused on understanding the cultural, social, and economic contexts responsible for these behaviors and developing evidence-based and data driven policies to reduce these behaviors and the costs associated with them.

The third focus of his research is on the impact of early life exposure to risk factors such as environmental pollution and malnutrition on birth outcomes as well as the well-being of individuals at childhood and adulthood. Dr. Tekin's work has been published in numerous scientific journals, including the Journal of Policy Analysis and Management, Review of Economics and Statistics, the Economic Journal, American Economic Journal: Economic Policy, Journal of Human Resources, Criminology, and the Journal of Law and Economics and has been funded by numerous institutions including the National Institutes of Health and the Robert Wood Johnson Foundation.

Twitter: @Erdal_Tekin_

Chris M. Herbst is an Assistant Professor in the School of Public Affairs and a Faculty Affiliate in the School of Social Work and the Center for Population Dynamics. His primary research area focuses on the impact of government-funded child care subsidies on measures of family well-being, including child cognitive and behavioral development, childhood obesity, and maternal mental and physical health.

More recently, Herbst has begun exploring measures of self-reported happiness as potential markers of public policies' success or failure. Current projects in this area include the impact of welfare reform and the Earned Income Tax Credit on the happiness of disadvantaged populations.